Tito will never forget the night he learned that the FBI had put a $5m price on the head of Diego León Montoya Sánchez ("Don Diego"), the leader of what was then Colombia's most powerful drug cartel. As the newest name on the FBI's list of 10 most wanted, Montoya was second only to Osama bin Laden as America's most wanted.

When he saw the headlines on the evening news that night in 2004, Tito turned to Montoya on the sofa beside him in the safehouse where they were hiding, and the two men shared a nervous laugh. Tito, who was part of Montoya's inner circle, thought: "Things are going to get hairy."

And they did. The offer of $5m made Montoya distrust everyone around him. Over the next three years Tito helped Montoya escape numerous Colombian police and military operations to capture him. After each failed attempt, Montoya ordered the murder of those he suspected of ratting on him – including several of Tito's closest friends.

"He started having people who knew things killed off. And if anyone knew things about Diego it was me," said Tito. So before Montoya could turn on him, Tito turned him in, figuring he could live the rest of his life comfortably with the $5m bounty. Thanks to Tito, Montoya is now serving a 45-year sentence in a Florida prison. But six and a half years later, Tito hasn't seen a dime of the reward.

The offer of bounties is a powerful weapon in the US "war on drugs", especially against foreign kingpins who have been indicted in US courts. The state department's Narcotics Rewards Programme is currently offering a total of $185m for 41 suspects around the world, including known Colombian and Mexican drug lords and members of Colombia's Farc rebels, who are deeply involved in the drug trade. It was a tipoff that led Mexican and US law enforcement officials to capture Mexico's most-wanted drug kingpin, Joaquín "El Chapo" Guzmán Loera, earlier this month. Guzmán was on the reward programme target list with an offer of up to $5m for information leading to his arrest. But the lure of a reward only works if people are paid. Tito and other Colombian informants who have helped capture or kill targets previously on the list say they have not received the rewards they were promised – and that the US is reneging on its obligations.

"I risked my life giving them information and the government has been jerking me around about the reward," Tito said. "Once they have what they want, we snitches become dispensable."

The failure to pay rewards may undermine the system, according to Alexandra Natapoff, a law professor at Loyola Law School, and the author of Snitching: Criminal Informants and the Erosion of American Justice.

"At some point these promises stop working if the government is no longer perceived as reliable by people who might give information," she said.

It was the promise of the reward, and the hope that his family might safely be relocated in the US, that led Tito to a meeting with federal agents at a diner in Brooklyn in August 2007.

Tito – who asked to be identified with the alias he used in the drug trade – worked with Montoya's Norte del Valle cartel off and on from the age of 18, first running a "kitchen" where coca leaves were processed into cocaine base and working his way up to be one of the capo's most trusted men, negotiating with other players in the country's billion-dollar drug game.

"Tito told us he could put his finger on Diego within 30 days. Twenty-nine days later he called with a location," says Romedio Viola, a retired agent with the US immigration and customs enforcement agency (ICE), which often works on drug-trafficking-related cases.

His capture was hailed as a major blow to Norte del Valle, which at the time was suspected of shipping as much as 70% of all the cocaine headed for the United States.

After Montoya's arrest, a federal agent told Tito: "You're a rich man." That comment now strikes him as a sick joke.

Farc's top military commander Jorge Briceño, who died in an airstrike in 2010. Photograph: Rodrigo Arangua/AFP

Tito and his family were given permission to live in the United States under a tenuous arrangement known as "public benefit parole", and he survives working as a laundry repairman in a southern US state making $8 an hour – when he can find work. A van he owned was repossessed because he couldn't make the monthly payments of $306. He and his wife pawned their wedding rings to keep the electricity on. "Tito was good to his word," says Viola. "The US government hasn't been."

The assistant secretary of state William Brownfield, who heads the state department's bureau of international narcotics and law enforcement affairs (INL), and who was US ambassador to Colombia from 2007 to 2010, declined to comment for this story.

But in an interview with Colombia's W Radio in August, Brownfield said that the Narcotics Reward Programme had a record of 100% compliance in paying promised rewards. "We have never, never failed in our duty and obligation to pay a reward," he said.

The programme has paid out some $88m since its inception in 1986, according to the state department. But since 2011, the department has requested no new funding from Congress for informant rewards programmes which include separate lists for drugs, terrorism, transnational crime and war crimes suspects.

The INL declined to say whether rewards had been paid for specific targets, and would not explain how reward decisions were made or why in some cases, such as Tito's, the process could drag on for years. The state department reports quarterly to Congress on payments made as part of the rewards programme, but the files are classified.

Another Colombian informant, who asked to be identified as John, said he has been waiting for more than seven years for a $1.7m reward for his part in the capture of Orlando Sabogal Zuluaga, another member of the Norte del Valle cartel – and a close relative of Tito's – who was arrested in 2006 at a shopping centre outside Madrid.

John, who served an 18-month sentence in the US on a bribery charge, said he had acted as an informant for US federal agents for more than a decade and claimed to have helped seize hundreds of tonnes in cocaine shipments and capture dozens of Norte del Valle cartel members.

In 2012, John filed a suit against the state department in the Southern Florida district court. The case was eventually dismissed for reasons of jurisdiction, but the department's defence offered an insight into how it sees informants. The department said the rewards programme was entirely discretionary and that it does not "confer any substantive or procedural rights … on individuals who furnish information to law enforcement agencies".

The department also argued that it was under no obligation to evaluate reward proposals in a particular timeframe, nor to provide informants with information about the status of the proposal or if it had been rejected. "Individuals have no right … to challenge the reward determination process or any particular decision made during that process."

Natapoff said the discretion in the reward programme put informants at the mercy of the government. "[US authorities] are taking advantage of their vulnerability because a lot of informants are criminals – what are they going to do?" she said.

A Colombian informant who goes by the name Juan was also considering suing the US government for his reward. Juan – a travelling salesman who often supplied rebel camps with goods – was instrumental in helping authorities locate the Farc's top military commander, Jorge Briceño, known as Mono Jojoy, who died in an air strike in 2010.

Orlando Sabogal Zuluaga. Photograph: Spanish Civil Guard/EPA

Juan received a $2.5m reward from the Colombian government and about $200,000 from the CIA and drug enforcement administration (DEA), which he said was to tide him over until the $5m from the Narcotics Reward Programme was paid.

In December 2012 an agent at the US embassy in Bogotá told him that the cash he had received was all he would get, according to an audio recording of the telephone conversation published by Semana magazine. "I always thought it would be the Colombians who would cheat me out of the money, but they made good," Juan told the magazine. "Why do [the US government] offer a reward if they're not going to pay?"

The US embassy in Bogotá did not respond to a request for comment, and the FBI and state department both declined to comment for this story.

Juan, who is in hiding after an attempt on his life, hired a US lawyer to see if he could sue for the money. The attorney's analysis was disheartening: in a review of case law and legal precedents, seen by the Guardian, the lawyer determined that in fact the offer of rewards did not constitute a binding contract so those who felt they had been swindled had little basis on which to sue.

The analysis also argued that the promise of "up to $5m" includes zero, and that no federal agent of the DEA, ICE or FBI had actual authority to offer a reward. "I'm not recommending anyone to do anything if they're counting on a reward," said a US attorney who often deals with informants and drug traffickers looking to negotiate with US authorities.

Tito now wishes he had heard that when he was deciding whether to turn in his boss. "I could have turned in other people but at the time no one had a price on his head as high as Diego. Plus, I felt like I was making history," he says.

Knowing what he knows now, Tito says he probably would not have bothered to give up Montoya. "They wouldn't have caught him," he says. "He would probably have been killed by one of the other bosses."